Slovenian Army’s New APCs: Patria’s AMVs

Finnish court proceedings end in dismissal, and could affect appeals in other countries.

Feb 7/14: Court. The Finnish Kanta-Häme District Court dismisses all charges against the 5 ex-Patria executives, due to “lack of concrete evidence”. Patria’s statement was short, and said that:

“The District Court’s decision was as expected. We consider the decision justified, both juridically and in light of the evidence.”

The court also decided to award more than $1.2 million in legal costs to the defendants. In some other countries, that sort of thing is a sharp jab that expresses a court’s displeasure with the prosecution. In this case, the court did say that there was a reasonable doubt that the executives might be guilty – but that’s near the other end of the scale from the criminal standard, which is “no reasonable doubt that the accused might be innocent.”

The drama isn’t quite over yet. Prosecutors in Finland, Slovenia and Austria have agreed that each state will determine how to rule in regard to its own citizens, and criminal sentences are being appealed in Austria and Slovenia. The Finnish ruling could lead to motions to exclude Finnish evidence, which was used in other countries’ trials. Sources: Patria, “District Court dismissed all bribery charges related to the Slovenian export project” | Defense News, “Finnish Court Dismisses Bribery Charges Against Patria” | Slovenia Times, “Patria Officials Acquitted in Finland” | YLE News, “Finnish court rejects Slovenian bribery charges against Patria”.

Keep reading for the whole story with recent events put in context

Slovenian “Svarun”
(click to view full)

In June 2006, the Slovenian Ministry of Defence picked Patria’s 8×8 wheeled Armored Modular Vehicle (AMV) as the preferred choice for its 135 vehicle armored personnel carrier program. The APCs would come in 4 different versions, including a variant with Patria’s new unmanned NEMO 120mm mortar turret. The deal was worth over EUR 275 million, with deliveries to take place from 2007-2013.

An ongoing bribery investigation led to the resignation of Patria’s President and CEO, and eventually to his arrest. A long-running controversy became a continuous distraction, and there were issues with sub-contractor performance along the way. In 2011, a new government cabinet unanimously voted to try and cancel the deal. In 2012, they succeeded.

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The Slovenian Sale

Patria AMV w. NEMO turret(click to view full)

The Slovenian “Svarun” award was a significant win for Patria in this context, and it was also significant as the first sale of their new single-barreled New Efficient MOrtar 120mm system, introduced in June 2006. Patria is better known for its twin-barreled and manned AMOS 120mm mortar turret, developed in partnership with BAE Hagglunds. Despite initial orders of 2 AMOS systems for the Finnish Army and 2 evaluation systems for Sweden, Defense Update describes AMOS as having an “inhibitive price tag.” This may create a market opportunity for the single-barreled NEMO, despite its lower rate of fire.

The AMV vehicles will be manufactured in Finland and in Slovenia with local co-operation partners. Industrial offsets will include 30% direct offsets within the contract, and 70% other Slovenian items exported globally. Production will gradually be transferred to Slovenia in 2007 and 2008, with Rotis and Gorenje in prominent roles.

Patria Oyj is owned 25%/75% by the Finnish State and EADS, and its AMV has been in serial production since 2004.

Contracts & Key Events

2009 – 2014

AMV “Svarun”(click to view full)

Feb 7/14: Court. The Finnish Kanta-Häme District Court dismisses all charges against the 5 ex-Patria executives, due to “lack of concrete evidence”. Patria’s statement was short, and said that:

“The District Court’s decision was as expected. We consider the decision justified, both juridically and in light of the evidence.”

The court also decided to award more than $1.2 million in legal costs to the defendants. In some other countries, that sort of thing is a sharp jab that expresses a court’s displeasure with the prosecution. In this case, the court did say that there was a reasonable doubt that the executives might be guilty – but that’s near the other end of the scale from the criminal standard, which is “no reasonable doubt that the accused might be innocent.”

The drama isn’t quite over yet. Prosecutors in Finland, Slovenia and Austria have agreed that each state will determine how to rule in regard to its own citizens, and criminal sentences are being appealed in Austria and Slovenia. The Finnish ruling could lead to motions to exclude Finnish evidence, which was used in other countries’ trials. Sources: Patria, “District Court dismissed all bribery charges related to the Slovenian export project” | Defense News, “Finnish Court Dismisses Bribery Charges Against Patria” | Slovenia Times, “Patria Officials Acquitted in Finland” | YLE News, “Finnish court rejects Slovenian bribery charges against Patria”.

May 15/13: Court. Time for some updates regarding the court proceedings associated with the Slovenian AMV contract. December 2012 saw Finnish charges of aggravated bribery laid against 5 people, with some of those defendants also charged with business espionage. Another 7 named individuals were not prosecuted, but just to make things really interesting, the Finnish prosecution will demand the questioning of all Slovenian defendants – including former Slovenian Prime Minister Janez Jansa.

Preparatory hearings began today in the Finnish District Court of Kanta-Hame, based on the pre-trial investigation initiated by the National Bureau of Investigation in 2007. The actual hearing is expected to take place in early fall 2013, and the prosecutor is also pushing for a corporate fine. Patria has pleaded not guilty, and will argue that the evidence fails to show that anything unlawful would have taken place in the company’s operations.

Meanwhile, in Slovenia, a 3rd trial is underway in connection with these events. Painter Jure Cekuta and retired brigadier Peter Zupan are charged with bribery and unlawful leaking of information. Patria | STA | STA re: local trial.

Sept 5/12: The Ministry of Defense of the Republic of Slovenia, Rotis Plus d.o.o., and Patria sign a 3-way, 3 part Settlement Agreement.

The 1st part of the agreement cuts the order from 135 “Svarun” APCs to the 30 that have already been delivered.

The next part of the agreement ends the industrial offsets agreement requiring Patria to make investments in Slovenia

The 3rd part of the agreement has Patria take over the vehicle support contract and future revenue streams from Rotis Plus d.o.o. Patria Oyj | Reuters.

Contract ended

March 25/11: Vote to cancel. Slovenia’s cabinet votes unanimously to cancel the AMV contract with Patria, who says it has not yet been formally presented with a demand. That is true, since the governing coalition will try to do it via lawsuit.

The move comes after the Ljubljana District Court turned down the government’s request for a temporary suspension, and STA says that the government will not appeal that March 15/11 decision. Reports indicate that the court indirectly encouraged a separate lawsuit instead, by mentioning that several legal arguments may exist in favor of an annulment suit, but not a preliminary injunction.

If an annulment suit does go through, the big question for the government is what damages it would still be liable for on the contract. Which is why even a successful lawsuit could simply end up being the starting point for new negotiations. Especially if the governing coalition changes again in the interim. Slovenia’s STA (Slovenska Tiskovna Agencija) | Slovenia Times re: court decision | Finland’s YLE News.

March 4/11: Lawsuit. The Slovenian government has asked a court to temporarily suspend the Patria contract, in light of bribery allegations. This is a more extreme response than contract renegotiation, but some local reports suggest that it’s really an attempt to evade a decision concerning the deal, by turning matters over to a court. The advanced state of the contract does suggest that termination costs would not be cheap, and there’s also the issue of what the Slovenian armed forces will do for APCs if the contract is canceled. Slovenia’s STA news | Finland’s YLE News.

March 25/09: Investigation.The Helsinki Times reports that Slovenian police “searched a number of premises” as part of an investigation into suspected corruption connected with the AMV deal. The suspects whose homes and offices had been searched were Slovenian citizens, and Finland’s National Bureau of Investigation participated under a 2008 joint agreement with the Slovenian police and prosecutor-general’s office.

2006 – 2008

ORCWS-30, fired(click to view full)

Nov 13/08: Investigation. Patria’s former CEO Jorma Wiitakorpi is arrested by Finland’s National Bureau of Investigation (NBI) on suspicion of industrial espionage, aggravated bribery and bribery in business operation. The Helsinki district court also remanded Veijo Vartiainen, the operative head of Patria’s Land & Armament unit, on suspicion of bribery in business operations and aggravated bribery. Wiitakorpi in particular remains both firm and public about his innocence, and both men have been released pending further proceedings. Time will tell. Newsroom Finland | Helsingin Sanomat | YLE News | Patria statement.

Oct 13/08: The Slovenian Defence Ministry denies reports that weapons stations mounted on some of the Patria APCs would not be new. Slovenian Press Agency | Slovenian MoD [in Slovene].

“The Army Materiel Command is selling 20 units of XA-360-APC [DID: XA-360 is the AMV’s designation] Kongsberg Protector weapon systems. It is also renting 20 APCs to Patria for an approximate period of 7 months. The APC weapon systems will be used as part of Patria’s operation regarding Slovenia. Patria will deliver new similar weapon systems for the Finnish Defence Forces. The reason behind this provisional arrangement requested by Patria, has to do with the company’s aim to uphold the agreed time frame regarding deliveries.”

Sept 30/08: Delivery. The Slovenian Armed Forces present the first APC delivered by Patria. The vehicle will undergo a 4-week validation test before the military will officially take over the vehicle.

“[Social Democrat leader and future Prime Minister Borut] Prime ministerial candidate Pahor has said that the Patria case will be removed form the political agenda, and left to the lawyers.”

Sept 19/08: The Slovenian Ministry of Defence removes Elbit’s ORCWS systems from the program, due to “shortcomings discovered in testing… above all at very low temperatures.” The ministry judged that Patria’s Slovenian intermediary Rotis d.o.o. had failed to secure the contractually agreed quality and reliability level of the weapon stations.

Rotis has suggested Kongsberg’s M151 Protector system as a replacement, and accepted all the risks and costs of the change. This removes the up-gunned 30mm gun option, as the M151 is limited to a range up to 12.7mm machine guns, and 40mm grenade machine guns. The Slovenian ministry has signed an annex to the contract to change that term, though prices and the delivery deadlines have not changed. Slovenian MoD release.

“Slovenia’s parliament ended a marathon special debate on bribery allegations against Prime Minister Janez Jansa Tuesday night by passing a motion of support for the government. But after more than 11 hours of debate, lawmakers urged Slovenian police and the prosecution service to investigate with Finnish authorities and said Slovenia’s defence ministry should cancel a 278-million-euro (402 million dollar) deal with Finnish defence contractor Patria if corruption allegations were proved.

…The motion was backed by 41 MPs out of the 54 that were present in the 90-seat parliament at the end of the debate. Eleven lawmakers voted against the motion while two small parties — centre-left Zares and nationalist Lipa — boycotted the vote… Jansa urged lawmakers to “close the issue for the moment and reopen it as soon as any proof to these absurd accusations is published.”

“At the moment, as I have understood things, there is no fear that the deal will be cancelled,” Olli Happonen, Patria’s General Councel, told AFP. He acknowledged, however, that the deal could fall through if the bribery charges are proven [in court], due to an anti-corruption clause in the contract.”

“The Patria employee of the former Vehicles Business Unit previously held in detention in connection with the ongoing investigation of the Slovenian armoured vehicle project has been released upon proposal of the police. Yesterday the Helsinki District Court decided to continue the detention of the other Vehicles’ employee.

The National Bureau of Investigation stated yesterday that Jorma Wiitakorpi, former President and CEO of the Patria Group, was interviewed as a suspect in July, and that his position in the investigation has not changed since.”

“The investigations by the National Bureau of Investigation (NBI) are likely to take months. I was Patria’s President and CEO when the customer made the decision regarding the Slovenian project in 2006. Neither Patria’s internal investigation nor the investigations by the NBI have brought up any written or oral evidence that would connect me to the suspected criminal activities. The CEO is, however, a significant aspect of the image of a company and the CEO is responsible for the firm’s entire operations.

At the moment various Patria units are negotiating new, significant projects in many different countries. At the same time our competitors are taking advantage of the situation to arouse suspicions among our customers. In these negotiations it is of vital importance that our customers have full confidence in Patria’s way of doing business also in the future. I have agreed with Patria’s Board of Directors that I renounce my position with immediate effect… I wish Mr. Heikki Allonen all the best in his new position as Patria’s President and CEO.”

“The Helsinki District Court has today decided to arrest a second employee of the former Vehicles Business Unit in connection with the ongoing investigation in the Slovenian armoured vehicle project. Patria’s executive management has been questioned in connection with the said investigation.

Patria concern works in close cooperation with the National Bureau of Investigation to clear up for its part all open issues in the investigations on one of its business units.”

Arrests

May 20/08: Scandal?A release from Patria discusses allegations that the company bribed senior political figures, in order to secure the Slovenian APC deal:

“The National Bureau of Investigation started on 13 May, 2008 a preliminary investigation concerning Patria’s vehicle deal in Slovenia. The suspected crime is bribery. In the preliminary phase some persons involved in Patria’s deal in Slovenia have been questioned. Three have been arrested for questioning. Two of them have been released and one imprisoned. Also, some other Patria employees have been questioned.

Patria cooperates with the NBI in order to clear the open questions. Patria’s understanding is that its personnel have followed all relevant legislation both in Slovenia and Finland.”

July 25/07: Elbit Systems announces a contract to supply overhead remote controlled weapon stations and unmanned turrets, as well as other electronic and electro-optical systems and components, for the Slovenian Armored Vehicle Program. Their portion is valued at approximately $ 40 million, with deliveries scheduled to take place through 2011.

Elbit Systems is working with Patria AMV, and they will deliver laser detection systems along with their 30mm ORCWS-30 and ORCWS (for 7.62mm or 12.7mm machine guns, or 40mm grenade machine guns) remote-control turrets on board Patria AMV 8X8 vehicles. ORCWS stands for Overhead Remote Controlled Weapon System, and is controlled from within the vehicle using a joystick and screen that shows imagery from the ORCWS’ multi-spectral sensor systems. See “Elbit Wins ORCWS Turret Orders” for more.

Rotis d.o.o. was established in 1990, and sells pipes, steel, and machines. The Gorenje Group is a household appliances maker under the Gorenje, Korting, Mora and Sidex brands; they are Slovenia’s largest net exporter, and recently surpassed EUR 1 billion in annual sales.

Local JV

June 12/06: Deal. The Slovenian Ministry of Defence picks Patria’s Armored Modular Vehicle (AMV) had been selected as the preferred vehicle for the its armored vehicle program. Patria says the order will include 135 wheeled armored personnel carriers in 4 different versions, including one variant with Patria’s new unmanned NEMO 120mm mortar turret. The deal had been negotiated at EUR 278 million (about $367 million), with deliveries to take place from 2007-2013.

The AMV’s most frequent competition comes from General Dynamics’ twin subsidiaries: Steyr with its Pandur II, and MOWAG with its LAV III Piranha. The December 2006 Patria release touts their AMV’s status as “…first of its kind in the world with the unique level of mine protection certified by South African authorities.” Even so, each competitor has seen its share of recent wins.

Patria had won some of these competitions, including a large 690-vehicle contract in Poland, plus 84 AMV orders from Finland so far that include 24 breech-loading 120mm AMOS twin-mortar variants. It has also lost competitions in Belgium (242 LAV III Piranhas for $850 million) The Czech Republic (199 Pandur IIs for $1 billion), and Portugal (260 Pandur IIs for $482 million). Patria Oyj.